1-2 Activity Financial Health Analysis

1-2 Activity: Financial Health Analysis

Ariel Dorsey

Southern New Hampshire University

FIN 550: Corporate Financial Management

Professor Stotler, James

March 01, 2024

The two companies selected (profitability ratios, financial strength, valuation ratios,

management effectiveness, and efficiency) to complete the synopsis analysis, using the

websites-CSI Market, Mergent Intellect, and -SEC EDGAR Company Filings to obtain the data

for both companies, you must obtain the ratios for the industry the companies operate in.

Spreadsheet attached to this synopsis.

Ratio analysis is a fundamental tool in corporate financial management, providing

insights into a company's performance, financial health, and efficiency. It involves the

calculation and interpretation of various financial ratios derived from a company's financial

statements, such as the balance sheet, income statement, and cash flow statement. One of the key

These ratios help determine if a company has sufficient assets to cover its liabilities and ongoing

expenses. Profitability ratios evaluate a company's ability to generate profits relative to its sales,

assets, or equity. Examples include the gross profit margin, net profit margin, return on assets

(ROA), and return on equity (ROE). These ratios are crucial for assessing how efficiently a

company is utilizing its resources to generate profits.

Leverage ratios measure the extent to which a company relies on debt financing. They

include the debt-to-equity ratio, interest coverage ratio, and debt ratio. High leverage ratios

indicate a higher level of financial risk, as the company may struggle to meet its debt obligations,

especially during economic downturns. Efficiency ratios, such as inventory turnover, receivables

turnover, and asset turnover, assess how effectively a company utilizes its resources to generate

sales and cash flow. Higher turnover ratios generally indicate better efficiency in managing

and profitable investment opportunity. Ratio analysis provides valuable insights into various

stakeholders make informed decisions regarding investment, lending, and strategic planning. It is

essential to consider industry norms, historical trends, and qualitative factors alongside ratio

analysis to get a comprehensive understanding of a company's financial position and prospects.

Dell Technologies, also known as Dell, helps organizations and individuals build their

digital future and transform how they work, live, and play. The company provides customers

comprehensive portfolio of networking and storage systems through Dell EMC as well as cloud

software from subsidiary VMware. Other brands include Alienware, Secureworks, Pivotal, and

Virtustream. Dell operates in about 180 countries through about a 31,000-person sales force and

a global network of about 240,000 channel partners.

HP Inc., is one of two companies created from the breakup of Hewlett-Packard Co. in

2015. HP makes a full line of computing devices from desktops and laptops for commercial and

consumer use to tablets and point-of-sale systems. Its printers include large format commercial

printers and inkjet and laser printers as well as 3D printers. It sells to individual consumers,

small- and medium-sized businesses (SMBs) and large enterprises, including customers in the

government, health and education sectors. The company generates about 35% of its revenue in

the US.

industry analysis projects a healthy EBITDA margin at approximately 4.5%, giving HP INC an

DELL Technologies INC is exceeding by 1.64%. The gross margin of DELL Technologies INC

is also healthier than HP INC by 0.76%, closer to the industry average percentage. The NAICS

Sector Personal/Electronic Computer Manufacturing 334111 has a projected return on

investments growing by the year at 0.6%, and the ability to gain from the current financial

strength current ratio of 1.87%. Since DELL Technologies INC has not hesitated to reinvestment

covering-short term liabilities; HP INC has negative shareholder equity, which is a more serious

situation than short term assets not covering-long term liabilities. While HP INC may be well

covered by the operating margin with free cash flow, it has negative shareholder equity and a

high debt level. DELL Technologies INC has a similar reputation, but it gains an advantage in

the probability ratio, efficiency, and valuation ratio sectors.

References

DELL Technologies INC. (2023, October 31). Retrieved March 1, 2024, from

2024, from Morningstar, Inc. website:

https://www.morningstar.com/stocks/xnas/morn/valuation

Personal Computer Manufacturing. (2024, January 2). Retrieved March 1, 2024, from Dun and

Bradstreet website:

https://s3.amazonaws.com/apdfs.mergentassets.com/FirstResearchArchive/

IndustryArchive/PECM/personalcomputermfg20240102.pdf?X-Amz-Content-

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